Why Money Won't Make You Happy, But Status Might

Instead, as University of California, Berkeley, business professor Cameron Anderson and his colleagues have found, subjective well-being is best predicted by your status relative to the groups of people that you have face-to-face relationships with, like your colleagues, friends, or neighbors.

They call it the "local ladder effect." Being a standout in your immediate peer group is way more rewarding than getting ahead in society at large.

This insight was confirmed in four studies of Anderson's. In each case, individuals with higher local status reported higher happiness levels than people who only had lots of money.

"I was surprised at how fluid these effects were," he told PsyBlog. "If someone's standing in their local ladder went up or down, so did their happiness, even over the course of nine months."

One reason for this is that people quickly adapt to a new level of income.

Lottery winners, for instance, usually experience a spike in happiness after winning - only to have their happiness levels soon return to baseline.

Social scientists call this the "hedonic treadmill": You get used to a pearly way of life in the same you grow accustomed to a tropical beach. After a while, even white sand goes from being exceptional to pretty much normal.

But being a few rungs up the local ladder continues to feel great.

"It's possible that being respected, having influence, and being socially integrated just never gets old," Anderson says.